Network equipment maker 3Com Corp said on Friday it will be bought by private equity firm Bain Capital Partners for $2.2 billion in a deal that will also give China's Huawei a minority stake.
While 3Com would not say how much Huawei Technologies Co Ltd was investing, the move was seen as an effort by China's biggest telecoms gear maker to expand outside its home turf to take on global market leader Cisco Systems Inc.
Huawei probably has the most to gain from this transaction and now has an entry into the U.S. market, RBC analyst Mark Sue wrote in a note to clients.
Under the terms of the agreement, 3Com shareholders will get $5.30 per share, a 44 percent premium over the stock's Thursday closing price of $3.68 on Nasdaq.
3Com said affiliates of Huawei would acquire a minority interest in the company as part of the deal and become a commercial and strategic partner.
The agreement comes six months after Huawei sold 3Com its 49 percent share of their joint venture, H3C, which was set up in 2003 to pool research and development. The partnership gave 3Com access to Asian markets and gave Huawei an entree into U.S. and European markets.
Huawei had said it exited the venture to focus on its core business of selling gear to telecoms service providers.
Kaufman Bros analyst Manuel Recarey said Huawei's investment in 3Com would give the Chinese company a product distribution network outside China and might help it compete for corporate customers in the United States and Europe.
Huawei's ultimate goal is to turn themselves into a Cisco, and to do that you need products to sell to enterprise, he said, noting Huawei's focus on service provider customers.
He said the Bain deal was a fair price for 3Com, which has struggled to compete against Cisco and other rivals. He said H3C likely represented the majority of the valuation, with the remainder going for 3Com's security unit, TippingPoint.
Recarey estimated about half of 3Com's revenue comes from China, less than 20 percent from North America, about 20 percent from Europe, Middle East and Africa, and about 5 percent from Latin America.
3Com shares were up $1.28 to $4.96 in midday trade on Nasdaq.
3Com, based in Marlborough, Massachusetts, said going private would give it more flexibility, and adding Huawei as a shareholder and partner would help boost its business in China.
Huawei resells H3C equipment in China. This represents more than 30 percent of H3C's revenue, executives on a conference call said.
3Com, which sells to small and medium-sized businesses, has been hurt by Cisco's recent focus on this market, according to analysts. 3Com posted a wider quarterly loss this month amid rising research and development costs.
Its business has been struggling quite a bit, said Recarey. They were starting to make positive steps, but it wasn't anything you could say was a clear sign of a turnaround.
RBC's Sue said he had reservations about whether going private would solve 3Com's problems. It may be viewed mostly as a relief than any potential long-term turnaround, he said.
Bain is one of world's largest private equity firms. The 3Com deal may be a positive sign for the industry, whose deal-making activity has been sharply curtailed by the credit crunch.
3Com said its board had unanimously approved the deal and would recommend it to shareholders. It expects the transaction to close in the first quarter.